Bonds Slide as Recession Becomes Less of a Certainty

Treasury debt prices fell on news of an unexpectedly small decline in nonfarm payrolls last month, which mitigated views that the economy was on course for a deep recession.

The jobs figures, along with an easing unemployment rate in April, also bolstered some expectations the Federal Reserve will pause for the time being from their recent interest-rate cutting campaign.

"The idea that the economic contraction is not yet deep has been buoyed," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co in New York, adding "these data strengthen the case for a pause in the Fed's interest rate cuts."

The benchmark 10-year Treasury note was trading 26/32 lower in price for a yield of 3.88 percent from 3.77 percent late Thursday, while the two-year Treasury note was trading 7/32 lower in price for a yield of 2.50 percent from 2.38 percent.

Two-year yields reached as high as 2.55 percent Friday morning, marking their loftiest since mid-January.

The Labor Department said Friday that employers cut 20,000 jobs in April, marking the fourth straight month of employment contraction. Economists on average had been looking for payrolls to decline by 80,000 after an upwardly revised loss of 81,000 jobs in March.

The unemployment rate also eased to 5.0 percent from 5.1 percent in March, which analysts said was further evidence the economy was not going into a recessionary tailspin.

"Overall this is a negative for the bond market," said George Adell, fixed income strategist at Commerce Capital Markets Inc in Jupiter, Florida, adding "this still spells weakness in the economy, but whether we are in a recession is still unclear. This will keep the Fed on guard in the future whether they need to cut rates further."

However the Fed's accompanying policy statement left many analysts thinking the central bank will hold off on further rate cuts for the time being but could loosen monetary policy again further down the road. The Fed's next policy meeting is scheduled for June 24 and 25.

The negative tone in the bond market set by the employment numbers was supported later in the morning by data showing stronger-than-expected factory orders in March.

The five-year Treasury note was trading 17/32 lower in price for a yield of 3.20 percent from 3.08 percent late Thursday, while the 30-year bond was 1-14/32 lower for a yield of 4.59 percent from 4.50 percent.